Krzanich Confirms Intel Overestimated PC Chip Demand

Intel reported 3% increase in revenue and 6% increase in profit, year over year, in its earnings call on Thursday. The company’s Q4 results were mixed, however, attributing the results to the PC business stabilizing while tablet and datacenter business grew modestly. Intel also offered additional information about Fab 42, which reports said was closing. The space, instead, will be held for “future technologies,” and Intel is housing 14-nm process in existing buildings.

Asked during the earnings call about Fab 42, Brian Krzanich, Intel’s chief executive said, “When you start these construction projects, you have to start them three years in advance. They are some of the most complex construction projects imaginable. We started this one three years ago. Our view of the PC industry and PC growth three years ago was much more robust than it is today.”

Krzanich went on to explain how the time it took to get the project started allowed Intel to react to the lower-than-expected demand for microprocessors. “We brought it up until the shell was complete and we held back putting equipment in until the demand requirement comes about,” he said, adding that the time taken to do so is part of the procedure that has been in place at Intel for the thirty years Krzanich spent in manufacturing at the company.

After dropping 3% year-over-year in Q3, Intel's PC CPU division sales, which accounted for 62% of revenue, were flat year-over-year in Q4. The division's operating profit increased 20% to $3.4B. Volumes rose 3% quarter-over-quarter and year-over-year; ASPs were flat quarter-over-quarter and down 2% year-over-year. Operating profit rose 11% to $1.46 billion. The company had $17.8 billion in cash/investments at the end of Q4, and $13.4 billion in debt. For the fourth quarter revenue came in at $13.8 billion up 3% from a year ago. Gross margin of 62% was flat compared to the third quarter

According to Stacy Smith, Intel’s chief financial officer, operating income for the fourth quarter was $3.5 billion up 12% from a year ago. Intel’s earnings per share was $0.51 up 6% from the year ago. For the full year 2013, the company’s revenue was $52.7 billion, its gross margin was 60%, operating income was $12.3 billion, net income was $9.6 billion and earnings per share was $1.89.

“The PC market was down on the year, we saw the market stabilize in the back half of the year with fourth quarter PC units up from a year ago,” Smith said. “Additionally we saw strong tablet growth in the back half of the year and inclusive of PC and tablets are unit growth in the fourth quarter was up almost 10% from a year ago.”

Intel’s revenue was down 1% for the year driven by a decline in the PC market. Its desktop segment, however, grew 11% over last year. While cloud was up 35% storage was up 24%, and high performance computing climbed 18%, enterprise fell short of expectations. The company’s networking segment grew 31%, while NAND grew 15%. Krzanich said the company was in the process of a shift marked by “a more outside in view of our industry and an intense focus on bringing innovation to market quickly.”

Krzanich opened by calling Q4 a solid quarter in a year of transition for both Intel and the computing industry in general. “We spent the year of building a foundation in important growing segments of computing and as a result we are better positioned to enter 2014,” he said. “Importantly, the big way of innovation inside the company has also improved.”

In an email exchange with EE Times, an Intel spokesman said yesterday that Intel’s Arizona site is the head site for high volume manufacturing of its newest 14-nm manufacturing process. All existing fab capacity in Arizona is capable of manufacturing on both 22-nm and 14-nm processes. “Meanwhile,” he added, “the new manufacturing facility, which is completed, is targeted for future technologies. The new construction was originally slated for 14 nm but through an ongoing drive in manufacturing efficiencies Intel was able to continue to use its existing buildings for 14 nm. This allows us to maintain the new building for additional capacity flexibility and future technologies.”

Asked if this meant that yesterday’s reports that Intel had effectively closed one of its fabs were inaccurate, the spokesman wrote “there were many reports that were problematic yesterday. What we have is a shell of a fab, it is not equipped and never was equipped but can be if we need it. Right now we are holding it for future technology.”

Obviously you are wrong, TSMC 16nm virtually do not exists like high volume process, TSMC has not a single production line on it. I can't see something of exciting in TSMC roadmap. 20nm is very late and able to produce only slow FPGA and modems; the process is so so and only in one version. Many customers are skipping it waiting for better choices. The very first 20nm Qualcomm SOC will born in volume in early 2015. No news about GPUs on this process in 2014, no news about AMD cpus on this process in 2014. Intel 14nm is fine and you know better than me the roadmap, Intel is ramping in production NOW. About TSMC 16nm my bet is end 2015/early 2016 for fast SOCs for Tablets and phones.....like said many times TSMC boss last months.

a possible scenario is skipping 14nmproduction in new fab all together. 14nm just in retrofit existing fab due to low demand for both 14nm and the 22nm they will be produced with. So 10nm comes to F42 at 450mm after setup of D1X Mod2 is possible. It could be major way for cost savings making 10nm on 450mm. Maybe Intel could actuall compete on wafer cost base if GF, TSMC and Samsung still makibg 14nm/10nm on 300mm. Just theory, but good strategy to procees D1X Mod2 even now with F42 use delay.

You said in an earlier comment that Ireland is not getting 14 nm. Intel came out yesterday and said there will be no job losses in Ireland.

Ireland is on the roadmap for 14 nm. With every post you spout more rubbish. Intel doesn't need to preserve jobs in the US first, it needs to firstly make money and for tax purposes, doing business in Ireland is in their best interest.

Intel is an Usa Company, so needs to preserve Usa emplojees first. Israeli teams are very strategic, so ireland will become irrelevant. Fab 28 wil be updated at some point. Ireland site seems useless in the long term...unfortunately